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US shale oil production continues to increase

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US shale oil production continues to increase

By Andrew Burger

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Production of liquid petroleum and natural gas fuels from “unconventional” shale oil deposits by U.S. companies has dramatically shifted the balance of global oil and gas production and fueled an equally dramatic, long-term decline in world oil and gas prices…

Surging production of unconventional shale oil and gas provided the impetus for the U.S. to vault to the #1 position as the world’s largest oil producer. Furthermore, it appears there’s a lot more unconventional oil production potential held in US shale deposits. The U.S. Geological Survey (USGS) in November 2016 announced that a team of its exploration geologists had discovered the largest deposit of U.S. shale oil yet. The find is in West Texas’s Permian Basin, a geologically defined area that has played a historic role in the history of U.S. and global oil and gas exploration and production.

Oil shale facility in Colorado (USGS, Wikimedia)

U.S. geological survey discovers largest oil shale deposit yet

According to preliminary estimates, the USGS believes the so-called Wolfcamp formation could contain as much as 20 billion barrels of oil worth as much as $900 billion. That would make it some three times bigger than North Dakota’s Bakken formation, the largest natural shale oil repository discovered to date. “The fact that this is the largest assessment of continuous oil we have ever done just goes to show that even in areas that have produced billions of barrels of oil there is still the potential to find billions more,” Walter Guidroz, coordinator for the USGS’s energy resources program, said in a statement.

The development and application of horizontal drilling and hydraulic fracturing, or “fracking,” methods, techniques and technology has enabled pioneering shale oil and gas companies to extract the petroleum liquids contained in vast, hydrocarbon-rich shale deposits across the U.S. Fast growing production has spurred investment in construction of new pipelines to transport shale oil and gas to refineries and storage/distribution hubs hundreds, at times thousands, of kilometers away. Refiners, in turn, needed to develop new processes and equipment to refine the heavy, high sulfur shale oil to produce a form of usable liquid petroleum.

U.S. shale oil production: the ripple effects

Surging U.S. shale oil production also fueled what has turned out be an unexpectedly long decline in, and bottoming out of, wholesale oil and gas prices globally, a trend that continues to defy predictions of an end. Along the way, this has laid to rest the “Peak Oil” hypothesis, at least for the time being. It has also gone a long way toward offsetting OPEC’s role as the world’s “swing” petroleum exporter and its ability to push the marginal price of crude oil on world markets.

Oil Shale from the Mahogany Zone of the Green River Formation, Colorado (Georgialh, Wikimedia)

As the world’s lowest cost producer of high-quality, low-sulfur light crude, the Saudis and other OPEC members initially believed that dramatically lower oil prices would force U.S. shale oil producers to shut down. Failures and bankruptcies have occurred, notably that of Chesapeake Oil, which developed and pioneered the use of horizontal drilling and “fracking” as a means of tapping into and extracting the hydrocarbons in shale deposits. Nonetheless, the US shale oil juggernaut continued to move on. The Saudis and other OPEC members have since changed tack. Collectively, OPEC’s effort to reduce oil production and exports haven’t met with much success, however. Oil prices dropped to six-week lows on June 15, “under pressure from high global inventories and doubts about OPEC’s ability to implement agreed production cuts,” Reuters reported.

Oil yielding kerogen rocks (The U.S. National Archives, Wikimedia)

The market outlook

“[On June 17, 2017] Brent crude oil hit a session low of $46.70 a barrel, its weakest since May 5 and just above six-month lows, before recovering a little ground to trade at $46.95, down 5 cents, by 9:27 a.m. ET (1327 GMT). U.S. light crude fell to a six-week low of $44.32. It last traded down 17 cents at $44.56,” according to the news report. Demand-supply conditions aren’t likely to turn in OPEC’s favor, according to industry forecasts. Amid a new boom, the current phase of U.S. shale oil production growth is even stronger than the run that took place from July 2011 to April 2015, Bloomberg First Word Oil Strategist Julian Lee highlights in a recent column.

Moreover, the current rise is occurring despite a 50 percent drop in world oil prices and before President Donald Trump has been able to do much of anything to deliver on his campaign promise “to lift the restrictions on American energy and allow this wealth to pour into our communities,” Lee highlights. Growth in U.S. oil production could accelerate if prices rise or costs fall further, he points out. U.S. shale oil production may turn out to be much more robust than projections, according to oil and gas portfolio strategist Robert Boslego. The statistical data is yet to be finalized, but preliminary estimates from the U.S. Dept. of Energy (DOE), North Dakota and Continental Resources indicate that U.S. oil production may offset all OPEC’s cuts in 2017, Boslego highlights.

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